LIVE MARKETS-View from the Street: the case for not buying the dip in Capita

Reuters Staff

10 Min Read

Feb 1 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
VIEW FROM THE STREET: THE CASE FOR NOT BUYING THE DIP IN CAPITA (1043 GMT)
After a 48 percent fall yesterday, brokers are digesting UK outsourcer Capita's
latest profit warning and outlining the possibilities for its future. Down another 4 percent
today to 177p the stock is certainly cheap - but why are bargain-hunters not snapping it up?
"Too early to buy back in despite the fall," say Deutsche Bank analysts. "Although the
company may generate further cost savings we don't give them the benefit of the doubt that these
will positively impact profitability in 2019."
They don't see Capita showing growing profitability until 2020 at the earliest - a date UBS
also targets as a potential recovery point.
"We think a (required) focus on internal execution will see negative earnings growth and
free cash flow for FY18e and FY19e, but FY20e could see both turn positive," write UBS analysts.
Barclays says Capita is a five-year turnaround story which must also grapple with "profound
change and uncertainty" in its markets.
"This is a first and necessary step on the road to recovery, but the lack of visibility
coupled with experience at Serco (where three years on the recovery in revenue and profits is
still elusive) will likely keep new money on the sidelines for a while yet," Barclays analysts
write.
(Helen Reid)
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BINGE-BUYING EUROPACORP SHARES, NETFLIX AND NO CHILL (1003 GMT)
Shares in French film director Luc Besson's EuropaCorp are on fire this morning, up
as much as 40 percent after French business daily Les Echos reported Netflix is in talks - not
clear at this stage exactly about what - with the company which made a hit with "Lucy", staring
Scarlett Johansson, in 2014.
After a box office disappointment for its big budget sci-fi movie "Valerian and the City of
a Thousand Planets" this summer, EuropaCorp has been on the look-out for new partners to bring
in fresh cash or help it restructure its debt.
EuropaCorp is worth currently a bit less than 100 million euros on the Paris stock market,
that's a market cap about 1000 times smaller than Netflix, which plans to spend up to $8 billion
this year on TV shows and movies to fend off rivals such as Amazon Prime.
Here's Luc Besson and the logo of his company in the background.
(Julien Ponthus)
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OPENING SNAPSHOT: TOP MOVERS (0817 GMT)
Return of the melt-up? European stocks are striding into February with strong gains led by
banking and tech stocks.
Among notable movers after results, Bic is down 6.7 percent while NEX Group
is top of the STOXX, up 7.4 percent after revenues rose. The financial technology firm
benefited from markets it said were 'noticeably' more active this year.
Meanwhile Shell took a 5 percent dive at the open and is now down 1.8 percent, the
worst-performing on the FTSE 100. It seems the cashflow might be what the market's taking issue
with. "Unfortunately, resilient earnings do not appear to have translated into cash generation
this quarter," write RBC analysts.
Dealmaking is still a feature too with Denmark's TDC tumbling 10.7 percent after
saying it would buy Swedish Modern Times Group's broadcasting and entertainment
business.
(Helen Reid)
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WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0748 GMT)
European shares are expected to open higher on the first day of February with futures up
around 0.4-0.5 percent following a weak end of January, which was marked by jitters over rising
bond yields and a stronger euro.
Earnings will be a key focus with heavyweights such as oil major Royal Dutch Shell
and drugmaker Roche having already reported results. Profits at Shell more than doubled,
slightly beating analyst expectations, although traders indicated the stock 1-2 percent lower
citing weak cash flow. Net income at Roche fell as sales growth was broadly in line with
expectations.
Consumer goods maker Unilever delivered better than expected fourth-quarter sales
growth, a possible relief for a sector which has been hit this year by a rotation back into
cyclical stocks. Its shares were indicated 1 percent higher.
Overall fourth-quarter earnings for the STOXX 600 are expected to increase by 11.9
percent year on year, the latest Thomson Reuters data showed.
In M&A news, traders mentioned as possibly market-moving a Bloomberg report saying BHP
is mulling a split of its US shale unit to speed up the sale of the business it values
at $10 billion.
(Danilo Masoni)
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EUROPEAN STOCKS HEADLINE ROUND-UP (0733 GMT)
With so many results coming in today, we've rounded up some of the most important we're
watching:
Shell's 2017 profits more than double
Unilever fourth-quarter sales better than expected
Daimler warns spending on new technology to dampen earnings growth
Vodafone's growth edges lower in Europe, but still on track for year
Nokia top quarterly expectations, buoyed by patent payment
Roche expects 2018 profit to grow faster than sales[
BT's Openreach ramps up fibre broadband rollout
Microsoft's cloud computing business grows, stock edges up
Facebook forecasts rising ad sales despite dip in usage
Novo Nordisk posts Q4 results slightly below expectations, chairman to step down
BBVA Q4 net profit falls 90 pct after Telefonica stake writedown
Denmark's TDC to buy MTG's Nordic Entertainment and Studios
Denmark's Orsted beats Q4 forecasts on strong wind operations
DNB Q4 beats forecast despite rise in digital investment
Dassault Systemes posts double-digit growth in new licences revenue
Lundin Petroleum launches dividend payments
Skanska construction order intake just lags expectations
UK's Rank interim profit jumps on strong online business
Vivendi CEO optimistic about talks with Mediaset over pay-TV dispute
Oreo maker Mondelez's profit beats on higher demand for key brands
Melrose to publish formal bid document for GKN on Thursday - source
Britain's Cranswick says Q3 revenue ahead on strong Christmas
NEX Group says markets "noticeably" more active since start of 2018
British private equity group 3i posts increase in net asset value per share
Ocado promotes Luke Jensen to executive director role​
(Tom Pfeiffer)
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FUTURES POINT TO BOUNCEBACK FOR EUROPEAN STOCKS (0717 GMT)
Futures have opened markedly higher this morning, pointing to a convincing bounceback for
the European stock market after a weak end to January. As we pointed out earlier, it's all about
earnings today, and UK companies' results have just hit the wire with heavyweights Unilever
and Shell reporting as well as Vodafone.
(Helen Reid)
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EARNINGS, EARNINGS, EARNINGS (0642 GMT)
It's going to be another busy day for corporate eanings with some big heavyweights like
drugmaker Roche, bank BBVA and Nokia
having already released their numbers earlier on.
Overall fourth-quarter earnings for the STOXX 600 are expected to increase by 11.9 percent
year on year, the latest Thomson Reuters data showed.
Here's your full list of companies reporting today:
AB SKF Q4 2017 Earnings Release
AcadeMedia AB Q2 2018 Earnings Call
Aptiv PLC Q4 2017 Earnings Call
Banco Bilbao Vizcaya Argentaria SA Q4 2017 Earnings Call
CapMan Oyj Q4 2017 Earnings Release
Cimpress NV Q2 2018 Earnings Call
Coloplast A/S Q1 2018 Earnings Call
Core Laboratories NV Q4 2017 Earnings Call
Daimler AG Q4 2017 Earnings Release
Dassault Systemes SE FY 2017 Earnings Call
DNB ASA Q4 2017 Earnings Release
Eaton Corporation PLC Q4 2017 Earnings Call
Ferrari NV Q4 2017 Earnings Call
Granges AB Q4 2017 Earnings Release
Inwido AB (publ) Q4 2017 Earnings Release
JM AB Q4 2017 Earnings Release
Kesko Oyj Q4 2017 Earnings Release
Lemminkainen Oyj FY 2017 Earnings Call
Lundin Petroleum AB Q4 2017 Earnings Release
Modern Times Group MTG AB Q4 2017 Earnings Release
Nokia Oyj Q4 2017 Earnings Release
Novo Nordisk A/S Q4 2017 Earnings Call
OM Asset Management PLC Q4 & FY 2017 Earnings Call
Orsted A/S Q4 2017 Earnings Release
Panostaja Oyj Annual Shareholders Meeting
Petroleum Geo Services ASA Q4 2017 Earnings Release
Qiagen NV Q4 2017 Earnings Call
Rank Group PLC HY 2018 Earnings Release
Roche Holding AG FY 2017 Earnings Release
Royal Dutch Shell PLC Q4 2017 Earnings Release
Sensata Technologies Holding NV Q4 2017 Earnings Release
Skanska AB Q4 2017 Earnings Release
Stolt-Nielsen Ltd Q4 & FY 2017 Earnings Call
Unilever PLC Q4 2017 Earnings Release
Yit Oyj Q4 2017 Earnings Release
(Danilo Masoni)
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MORNING CALL: EUROPE SEEN HIGHER (0617 GMT)
Good morning and welcome to Live Markets.
European stocks are set for a positive open on the first day of February, recovering the
slight losses seen in the previous session when the broader STOXX 600 index fell for a
third straight session to its lowest level in almost four weeks. The STOXX ended January up 1.6
percent.
Overnight Asian shares eked out modest gains, clawing back sharp losses from earlier this
week, however, rising U.S. bond yields and interest rates could dampen investors' optimism
toward the global economic outlook.
Here are your opening calls, courtesy of CMC Markets.
FTSE100 is expected to open 23 points higher at 7,556
DAX is expected to open 41 points higher at 13,230
CAC40 is expected to open 14 points higher at 5,495
(Danilo Masoni)
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(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)